The double-storey building at 198 Koroit Street sold under the hammer for $450,000 on Friday.

Ray White Warrnambool auctioneer Jason Thwaites said the 246 square-metre property had a price guide of $450,000 to $500,000 and sold to a Warrnambool investor.

He said there were two bidders and a crowd of about 25 people attended the auction of the 170-year-old property.

Mr Thwaites said he was unsure what the purchaser intended to do with the property and it could be used for either residential or commercial purposes, both of which are in demand in the city.

"It could be used as a four-bedroom residence," Mr Thwaites said. "It has been a residence. It originally belonged to the Reeves family who manufactured cordial and soft drink in the area."

He said the building boasted solid sandstone walls and it had undergone a revamp two decades ago.

"Both vendors and purchasers were happy," he said. "There is a shortage of commercial real estate available in the city so it will attract attention in the leasing market if it does go commercial and it's the same if it goes residential," he said.

"It's a great spot and gives you really easy access to the whole of the city."

Prior to auction, Mr Thwaites said there had been interest from both out-of-town buyers and locals and there was a healthy appetite for commercial properties in the city.

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